The macroeconomic effects of oil price uncertainty

• Published in: Energy economics 2023-09, Vol.125, p.106839, Article 106839
• Main Authors: Abiad, Abdul, Qureshi, Irfan A.
• Format: Article
• Language: English
• Subjects: Business cycle fluctuations; Oil price uncertainty; Textual analysis
• ISSN: 0140-9883; 1873-6181
• DOI: 10.1016/j.eneco.2023.106839

We study the impact of oil price uncertainty (OPU) on macroeconomic activity. We construct a new measure of OPU by extracting information on oil markets from 50 newspapers around the world using textual analysis techniques. Our index spikes around important historical events, such as the oil price shock of the 1970s and the supply glut of the 1980s. The effects of OPU on macroeconomic activity are captured using Bayesian vector autoregressive techniques. OPU is an important source of macroeconomic fluctuations in the US, with industrial production displaying a maximum estimated drop of 0.34% almost 10 months after impact. These negative effects are sharpened when monetary policy is constrained by the Zero-Lower Bound. OPU exerts an economically meaningful impact on global economic conditions and affects economic activity in other industrialized countries. •Develop a news-based index of oil price uncertainty (OPU) using textual analysis techniques.•Index spikes around key historical events.•OPU is an important source of macroeconomic fluctuations in the U.S.•Negative effects of OPU sharpen in the presence of the Zero-Lower Bound (ZLB).•OPU exerts an economically meaningful impact on global economic conditions.